USD Vol: ULC flies higher still; Rate vol outlier

 ULC flies higher still; Rate vol outlier  

Treasuries have moved higher today in a belly-led move that last sees yields anywhere from 3.8 to 6.5bps lower on the day. Equities are off the lows of the day and posting modest losses, with the mood more risk off, a source remarked. The vol surface is firming with the upper left leading the move. The bid to vol in the past week or so has been “relentless” and “perplexing,” remarked one trader.

“It is more of a hockey stick curve for vol in that vols don’t really go down when rates are higher, but then move much higher versus underlying rallies,” the source explained. While rate volatility has been going up, other volatility has been going down: “It’s weird cause FX, equity and commodity vol is all down,” with, for example, the VIX at a tame 17, he added. 

3m expiries are last around 3 to 5 vols higher in the ULC versus unchanged to up 0.5 in 7y to 30y tails. 1y expiries are anywhere from 0.5 to 4 normals firmer, led by the left side.

Meanwhile some sources see flows in the market have been “better sellers of gamma" such as 1m expiries. That said, it has not taken much actual trading for vol to push higher, and a source suggested that thin liquidity conditions and a lack of conviction are playing a role in magnifying the vol move.

In interbank activity, 1y2y traded at 240bps, a switch of 3y1y versus 2y2y dealt at 177bps and 298bps, respectively, 18m1y dealt at 150bps, and earlier in the session 1y1y traded at 128bps, a switch of 3y2y versus 5y2y traded at 328bps and 373bps, respectively, and 1m5y traded at 150bps and 1y5y at 470bps.

In a switch, 3m20y versus 3m2y traded at 575bps on the 3m20y versus 130bps and 129bps for the 3m2y, while 1y20y versus 4y20y traded at a spread of 846bps and then 850bps.

6m1y skew head fakes; Stays receivers over

The vol move has been following short-dated skew, sources point out, with the very upper left still receivers over. That said, one trader noted that 6m1y risk reversals seemed to have some momentum pushing towards going flat at the end of last week. “It looked like 6m1y was gapping,” a source highlighted, with the market turning from -9.5bps earlier in the month, to -8.5bps and -8bps last week, and then -8bps/-3bps market on the follow. 

However, a new slug of sellers of payers then emerged with “sellers of OTM payers from typical ratio trades,” noted the source, and thus brought back sellers of payers as a result.

For USD option trades on the SDR see here and for volumes please see here.  

New structured notes

For a complete review of USD MTN activity over the past week, please see USD MTNs.  

• JP Morgan sold a $22m 10y NC5 fixed callable Formosa. The EMTN matures May 2033, is callable annually from May 2028 and pays a 5.0% coupon. Lead Sinopac and announced April 18.

   

• IBRD is working on a $50m fixed callable via JPM maturing May 2027 NC6m that pays 5.12%. EMTN.

   

• IBRD is working on a $50m fixed callable via CACIB maturing May 2027 NC6m that pays 5.1%. EMTN.

   

• IBRD is working on a $20m fixed callable via BNPP maturing Apr 2033 NC1 that pays 5.5%. EMTN.

   

• IBRD is working on a $50m fixed callable via CACIB maturing Apr 2027 NC6m that pays 5.11%. EMTN.

   

• JP Morgan is working on a self-led $15m floating callable maturing Apr 2033 NC4 that pays O/N SOFR +1.09%. EMTN.

   

• JP Morgan is working on a self-led fixed callable maturing May 2026 NC1 that pays 5.25%. Domestic MTN.

   

• Bank of America is working on a self-led fixed callable maturing May 2028 NC1 that pays 5.4%. Domestic MTN.

   

• Bank of America is working on a self-led fixed callable maturing May 2026 NC6m that pays 5.55%. Domestic MTN.

   

• Barclays is working on a self-led fixed callable maturing May 2026 NC3m that pays 5.25%. GMTN.

   

• Barclays is working on a self-led fixed callable maturing May 2033 NC2 that pays 5.5%. GMTN.

   

• CIBC is working on a self-led fixed callable maturing May 2028 NC1 that pays 5.4%. GMTN.

   

• CIBC is working on a self-led fixed callable maturing May 2025 NC1 that pays 5.4%. GMTN.

   

• UBS is working on a self-led fixed callable maturing May 2024 NC3m that pays 5.31%. EMTN.  

   

• UBS is working on a self-led fixed callable maturing Jul 2024 NC2m that pays 4.6%. EMTN.  

   

• UBS is working on a self-led $100m fixed callable maturing Jul 2024 NC2m that pays 6.25%. EMTN.  

   

• Toronto Dominion is working on a self-led fixed callable maturing Apr 2028 NC1 that pays 6%. GMTN.

   

• Royal Bank of Canada is working on a self-led fixed callable maturing Apr 2026 NC2 that pays 5.18%. GMTN.